We are often asked whether a professional Property Manager for an Association is considered a debt collector under the Federal Fair Debt Collection Practices Act.  The clear answer to that question is . . . it depends.

The Federal Fair Debt Collection Practices Act was passed to prohibit certain debt collection practices and to further restrict the actions of debt collectors who were engaging in questionable conduct.  Under the Act, a “debt collector” is defined as any person whose principal business purpose is the collection of any debt or one who regularly collects or attempts to collect debts owed or due or asserted to be owed or due another.  However, not all who collect debts are deemed “debt collectors” for purposes of the Act.  For example, attorneys have been deemed debt collectors under the Act, whereas officers and employees of creditors are generally not.  Therefore, a question exists as to whether or not a Manager working at the direction of a Board to collect an Association’s debt would be deemed a debt collector or not, as noted above. 

While there is no dispositive case law in Pennsylvania regarding this issue, a recent case captioned Angela Harris, et al. v. Liberty Community Management, Inc., United States Court of Appeals, No. 11-14362 was reported in the Eleventh Circuit.  While only persuasive on the issue in Pennsylvania, this case is certainly informative.  In this matter, a management company and the manager were sued for violation of the Federal Fair Debt Collection Practices Act.  After years of extensive and likely costly litigation, the court ultimately decided that under the specific facts of the case, the manager was not a debt collector, but rather fell under one of the exceptions after applying the issues to their Planned Community state statute.

In the case cited above, the manager and the management company were found to be not liable to the plaintiff.  In one sense, they won the lawsuit.  In another sense, did they really win given the amount of time, stress and financial resources that went into the lawsuit?   In the case of Wright v. Ross, 2008 WL 190466, *2 & n.7 (M.D. Fla. Jan. 18, 2008), the court indicated in dicta that homeowner and condominium owners’ maintenance assessments might qualify as “debt” under the Federal Fair Debt Collection Practices Act.  While this case does not explicitly state that the manager and management company would be considered “debt collectors” for the purposes of the Act, it evidences a step in this direction. 

As such, it is important to review your collection practices on behalf of Associations in order to bring them into compliance with the Federal Fair Debt Collection Practices Act.  By reviewing your procedures and assuring they are in compliance with the Act, you may reduce the risk of an action being filed against you and your company and reduce the risk of a negative outcome.

Should you have any questions regarding this article or your collection practices, please do not hesitate to contact us.

As a professional Property Manager, I am sure you have seen this scenario before.  You are faced with a chronically delinquent unit owner who has made no good faith effort to bring their considerably delinquent account current.  They frequently bounce checks or specific bank account information is not available, so a writ to attach their bank account is not likely to result in the recovery of monies due to the Association.  What's the Association to do?

Your legal counsel has obtained a title report for the delinquent unit which reveals a significant amount of equity in the property.  As a result of the property's considerable equity, the Association can proceed with a foreclosure action.  Problem solved.  The Board approves the foreclosure action and your legal counsel moves forward to secure a judgment and schedule the unit for a Sheriff's Sale.  On the eve of the Sheriff's Sale, the Board instructs you to go through with the sale, but under no circumstances does the Board want to take ownership of the unit.  Herein lies the problem, as these instructions are incompatible.

As legal counsel to over 200 community associations, we go to great lengths to assure that our clients have a clear understanding of the foreclosure process and the possible outcome of a Sheriff's Sale.  One such outcome is that the Association takes title to the unit and recovers the delinquent assessments through resale of the unit.

Ideally, the foreclosure of the property will result in the unit owner's payment of the past due assessments or a third party will purchase the property at the Sheriff's Sale for an amount sufficient for the Association to recover all past due assessments. However, in the event that the unit owner does not pay and the matter proceeds to Sheriff's Sale, there is a real possibility that a third party may not purchase the property. So what happens?

To the extent that there is no willing third party buyer at the Sheriff's Sale, the property is "sold" to the Association by the Sheriff for "costs." The "costs" of the Sheriff's Sale vary widely from county to county, as does the timing and method of payment required from the Association. However, the Association may then proceed to recover the past due assessments and costs incurred with respect to the Sheriff's Sale of the property by cashing in on the Unit's equity through the resale of the property. This is why it is critical that the Association confirm that there is sufficient equity in the property prior to commencing a foreclosure action. Legal counsel should be consulted in order to evaluate the priority of the Association's lien for unpaid assessments and to determine if the extreme measure of foreclosure is appropriate on a case by case basis. Finally, the Board must have a clear understanding of the possible outcome of the Sheriff's Sale and be committed to seeing the process through to conclusion.

The answer is that the association already has an automatic lien against the unit.  Pursuant to the Pennsylvania Uniform Condominium Act and the Uniform Planned Community Act, the association has a lien against a delinquent unit which is always equal to the actual amount of delinquent assessments, late fees, fines, interest, costs and attorney fees owed from the time such amounts become due.  The lien exists by virtue of the recording of a declaration against the property at the time the condominium or planned community was formed.  The recording of the association's declaration constitutes the filing and perfection of a lien against all units to the extent that there are delinquent assessments due and owing to the association.  The lien is in place against a delinquent unit without the need to file anything with the Court.

So why does the association have to file a complaint against the unit owner if they already have a lien against the unit?  While the automatic lien protects the association with respect to a third party buyer's purchase of the unit from the unit owner, the association cannot execute on this lien.  The lien must be reduced to a judgment in order for the association to collect the delinquent assessments which it is owed outside the context of a sale of the unit to a third party buyer.  In other words, in order to attach a unit owner's bank account, execute against their personal property or foreclose upon their unit, the association must secure a judgment against the unit owner by the filing of a complaint in Court.  After securing a judgment, the association can proceed with the execution and collection of the delinquent assessments by the methods described above.

Notwithstanding the information above, it is important to note that the automatic lien for delinquent assessments is extinguished unless proceedings to enforce the lien are commenced within three years after the assessments become payable.  This means that the association must file a complaint within three years after the assessments become due.  Associations should be careful to pursue the enforcement of the lien by filing a complaint before the expiration of the three year period so that the association's lien is not extinguished.

Under both the Pennsylvania Uniform Condominium Act and the Pennsylvania Uniform Planned Community Act, an Association has the right to foreclose upon the Association's statutory lien in a manner similar to a mortgage foreclosure.  The provisions set forth in both of these Acts are retroactive and, therefore, apply to all condominiums and planned communities in Pennsylvania.

While the foreclosure process may be complex, it can be a useful tool under certain circumstances. Foreclosure may be an appropriate remedy where an Association has exhausted all other remedies, where collection efforts have been frustrated and/or past due assessments are significant.  Therefore, careful consideration should be given to the facts of each case in order to determine if foreclosure is an appropriate remedy.  The analysis includes a determination of the equity in the property and the priority of the Association's statutory lien in connection with any other liens, judgments, or mortgages against the property.  In addition, the Association's potential ownership of the property raises a host of other considerations which must also be addressed, including:  Is the Association responsible to satisfy the first mortgage lien or tax liens, if any, against the property?  What is the condition of the property?  Will an action in ejectment be necessary to evict the current occupant of the property?  What are the Association's responsibilities in terms of any prior liens to which the property remains subject?

We recommend a careful review of all of these issues by the Association's Board and legal counsel to determine if foreclosure is an appropriate remedy.